V-Guard Industries Ltd.

Dear Shareholders, Thank you for taking time to read our annual report of FY 14-15 which comes with the theme Powering Ahead - an expression of our operational resilience in the face of changing business conditions. We continue to successfully stride through diverse challenges powered by the V-Guard brand equity, governance, product innovations, strategic initiatives and by maintaining stakeholder relations. Performance Review Your company, though started FY 14-15 on a buoyant note, stumbled upon many macroeconomic challenges in the second half of the year. The favourable consumer sentiments echoed positively on our performance during the first two quarters of the year. During this period our revenue as well as margins improved substantially. However during Q3 & Q4, the initial euphoria plummeted giving way to weak consumer sentiments, lower rural demand on inferior farm incomes and slower-than -expected growth in construction activity. Sales of some of the key products in our electrical segments such as housing wires, cables and pumps were impacted, reflecting on our revenue growth as well as margins. Though lower than expected, our top line improved by 15% y-o-y basis as against 12% in the previous year. During the year under review we achieved a total revenue of Rs.1746 crores as against 1517 crores in the previous year. The growth in revenue was propelled by increased sales from water heaters, stabilizers, fans and kitchen appliances. Our amplified advertising and aggressive marketing initiatives helped in increasing the revenue share from non south markets to 33% as against 30% in the previous year. Our margins were impacted due to multiple macroeconomic developments - among them reduction in copper prices which lead to destocking of cables & wires by distributors and subsequent inventory losses. Planned spending for enhancing our manpower in key functional areas of production and marketing along with expansion of our customer service networks also had its impact on our margins. Our PAT remained flat y-o-y basis. Higher depreciation charges and increased tax outgo impacted the PAT margin. As you may be aware, some of the plants availing tax free status during last five years have now come partly under tax. Our average tax rate has gone up from last year''s 26 per cent to 30 per cent. Consistent with our progressive dividend policy, the Board of Directors have recommended a final dividend of Rs.4.50 per share for FY14-15. Key Initiatives in FY14-15 During the year when the market became unfavourable, we turned inwards to further improve our operating efficiencies. By deploying rigorous internal controls, inventory management and tight control on receivables, we managed to increase our cash flows substantially. Our working capital cycle marked an improvement by 6 days during the year. During the year we launched our premium variant of the electrical water heater Pebble across India. Pebble comes with engineered polymer anti-corrosion technology for 100 per cent rust resistance. The product was widely accepted by consumers and contributed considerably to our revenue growth. Further leveraging on our brand and distribution network, we expanded market for our cook tops and mixer grinders by launching them in few other southern states as well. Customer care is akin to our vision to make V-Guard a trusted household name. In order to improve the quality of our customer service and ensure sustainable growth, we invested in a franchise-based after sales service system, upgraded the IT infrastructure and also setup a unified third-party call center. With the involvement of an external consultant, we are in the process of making our supply chain leaner and more robust. This new SCM initiative will, among other benefits, help to maintain optimal inventory at various stock points, there by bringing down inventory costs. Governance We continue to comply fully with all governance, statutory, reporting and social norms. The Board is responsible for the leadership, control, development, risk management and long-term success of the company. V-Guard has its own unique culture and ethos established since its inception, to achieve the highest standards of governance through honesty and openness in all business dealings. Our Board comprises of a diverse mix of experienced individuals, chosen for their relevant skill sets, valued for their independent mind-set and collectively supporting the management on all corporate strategic initiatives. Corporate Social Responsibility Social responsiveness and community development is embedded into V-Guard business model beyond compliance and regulatory compulsions. Corporate Social Responsibility is an integral part of our culture and we are committed to fulfill our responsibilities as a member of the society and community. V-Guard continues to contribute towards improvements in the field of education, healthcare, disaster relief and environment. Our CSR team, guided by the Board constituted CSR committee, has implemented various social development initiatives across India. In the year FY 14-15 we spent Rs.164 lakhs towards these initiatives. Outlook As on today, India has one of the lowest per capita in consumer durables usage. It is estimated that by 2025 India will become the 5th largest consumer durable market in the world. With the government''s focus on rural electrification, the usage is expected to increase across the rural heartlands in India. With a healthy product mix, pan-Indian branch, distributor, retail and service networks, we are in full readiness to capitalise on the emerging opportunities. We will continue to focus on increasing our retail network in non-south states and thereby increase revenue contribution from non-south distributors. A strong foundation has been laid in the non-South markets through aggressive brand building initiatives which will be continued. The focus will be on turning around the underperforming states, resolving product mismatches in these states and strengthening the sales teams. India is poised to embrace GST, a long cherished uniform tax regime soon. With the implementation of GST, multiple levels of taxation is expected to come down. It could also reduce cost of carrying inventory, since businesses can manage with lesser number of warehouses. It will also reduce the time and cost taken for movement of goods across the country, bringing down logistic cost. V-Guard is poised to take advantage of GST implementation with our advanced technological as well as operational capabilities. Let me assure you that today V-Guard is a more resilient company with a well nurtured product and process advantage. While we remain committed to increasing the shareholder value, we are equally committed to our responsibility towards corporate governance, society and environment. I would like to express my sincere thanks and gratitude to all stakeholders including our esteemed shareholders, valued customers, vendors, banks, Central and various State Governments for the faith reposed by them in the company. With Best Wishes Kochouseph Chittilappilly Chairman